- 13 -
Based on the foregoing, we find that petitioner is not
entitled to exclude from gross income the increased retirement
benefits she received in 1991.
The issue of the deductibility of the $41,063 legal expenses
is resolved by considering the context in which the expenses were
incurred. A taxpayer is permitted to deduct legal fees under
section 162 or section 212, provided that the fees have the
necessary connection to profit-seeking activity. Pursuant to
section 62(a), legal fees may be deducted from gross income as a
business expense under section 162 if the fees are directly
related to the taxpayer's trade or business. If the taxpayer's
trade or business is that of being an employee, however, then the
legal expenses will be subject to the limitation of section
62(a)(1) and will be treated as a miscellaneous itemized
deduction pursuant to section 67.
Petitioner's lawsuit against the Postal Service arose from
and was related to her prior employment with the Postal Service.
Thus, her legal expenses originated from and were related to her
trade or business of being an employee. Consequently,
petitioner's legal expenses are a miscellaneous itemized
deduction. We sustain respondent's determination on this issue.
To reflect the foregoing,
Decision will be entered
for respondent.
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13
Last modified: May 25, 2011